4
Futures processing
Futures contracts are margined instruments. This means that the
full value of the contract is not exchanged at the time of the trade
but instead the open position that the transaction creates is
marked to market. This revaluation process creates a profit or loss
on the position on a daily basis, which is in turn due for settle-
ment. Futures contracts also attract what is known as an initial
margin or deposit that is required from the holders of open futures
positions.
Futures are designed to go to delivery and the contract standard
published by the exchange informs users whether the delivery is in
physical form, i.e. if the underlying asset is deliverable, or if it is
cash-settled or if there is an alternative delivery process.
The futures contract specification is, therefore, a key document
that also includes details of the maturity months available, the unit
of trading and other important information related to the contract.
Each exchange publishes contract specifications and also ‘summary’
specifications that outline the main details of the contract. Each
exchange not surprisingly has its own style.
From an operations point of view these specifications contain
essential static data such as the minimum price movement and
value, maturity months, etc. Terminology used in different markets is
evident in the details contained in the specifications; for example, in
the CME the Point Description describes what in the UK would be
called the minimum price movement and value (commonly called the
tick size).
An example of the Eurodollar futures contract listed on the CME is
shown below.
46 Clearing and settlement of derivatives
Eurodollar Futures
Trade Unit Eurodollar Time Deposit having a princi-
pal value of $1,000,000 with a three-
month maturity.
Point Descriptions 1 point .01 $25.00
Contract Listing Mar, Jun, Sep, Dec, Forty months in the
March quarterly cycle, and the four near-
est serial contract months.
Strike Price Interval N/A
Product Code Clearing ED
Ticker ED
GLOBEX GE
Trading Venue: Floor
Hours 7:20 a.m.–2:00 p.m.Holidays LTD(Monday
5:00 a.m.)
^
See note*
Listed All listed series
Strike N/A
Limits No Limit
Minimum Regular 0.01 $25.00
Fluctuation
Half Tick 0.005 $12.50
Quarter 0.0025 $6.25 for
nearest expiring
month.
Trading Venue: GLOBEX
®
Hours Mon/Thurs 5:00 p.m.–4:00 p.m. & 2:00
p.m.–4:00 p.m.; Shutdown period from
4:00 p.m. to 5:00 p.m. nightly; Sun & Hol
5:00 p.m.–4:00 p.m. LTD-5:00 a.m.
Listed All listed series
Strike N/A
Limits 200 points
Minimum Regular 0.01 $25.00
Fluctuation
Half Tick 0.005 $12.50
Quarter 0.0025 $6.25 for
nearest expiring
month.
Trading Venue: SGX
Hours Sun/Thur 9:20 p.m.–4:00 a.m.
Listed All listed series
Strike N/A
Limits No Limit
Minimum Regular 0.01 $25.00
Fluctuation Months 11 thru 40
Half Tick 0.005 $12.50
Months 2 thru 10
Quarter 0.0025 $6.25 for
nearest expiring
month.
Source: CME.
Futures processing 47
We can compare this contract specification with that of the Eurodollar
Future listed on Euronext.liffe:
Three Month Eurodollar Interest Rate Futures Contract
Unit of Trading Interest rate on three month deposit of
$1,000,000
Delivery Months March, June, September, December and four
serial months, such that 24 delivery months
are available for trading, with the nearest six
delivery months being consecutive calendar
months
Quotation 100.000 minus rate of interest
Minimum 0.005 ($12.50) for all delivery months
Price Movement
(Tick Size & Value)
Last Trading Day 11:00 London time – Two London busi-
ness days prior to the third Wednesday
of the delivery month
Delivery Day First business day following the Last
Trading Day
Trading Hours 07:00 to 21:00 London time
Daily Settlement Positions settled to nearest 0.005
20:00 London time
Trading Platform
• LIFFE CONNECT
®
Trading Host for Futures and Options.
• Algorithm: Central order book applies a pro-rata algorithm,
but with priority given to the first order at the best price sub-
ject to a minimum order volume and limited to a maximum
volume cap.
• Wholesale Services: Asset Allocation, Block Trading, Basis
Trading.
Exchange Delivery Settlement Price (EDSP)
Based on the British Bankers’ Association offered rate (BBA US$
LIBOR) for three month US$ deposits at 11:00 London time on
the Last Trading Day. The settlement price will be 100.000
minus the BBA US$ LIBOR. Where the EDSP Rate is not an
exact multiple of 0.001, it will be rounded to the nearest 0.001
or, where the EDSP Rate is an exact uneven multiple of 0.0005,
to the nearest lower 0.001 (e.g. BBA US$ LIBOR of 1.53750
becomes 1.537).
Contract Standard
Cash settlement based on the Exchange Delivery Settlement Price.
Source: Euronext.liffe.
48 Clearing and settlement of derivatives
Apart from terminology some of the differences in these two contracts
are fundamental; for instance the CME contract is traded on the
CME trading floor, on the electronic system Globex and also in
Singapore on SGX.
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